LONDON: Sterling edged up from a two-month low against the dollar on Tuesday and held steady before UK inflation data which would provide clues on whether more monetary easing is on the cards.
It was trading at $1.5862 and having broken through the 100-day moving average, the next support for sterling was cited at $1.5850, its 200-day moving average and a level not seen since late August.
The pound slid to $1.5857 early in Asian trading hours, its lowest level since Sept. 5, extending losses as it digested the impact of last week's bond-buying changes and on caution before Wednesday's Bank of England Inflation Report.
Inflation data, due at 0930 GMT, is expected to show the annual rate of consumer inflation rising slightly to 2.3 percent in October from 2.2 percent the previous month.
A higher rate of inflation might reduce the odds of the BoE easing monetary policy further and this will provide some support to sterling in the near-term.
"Stronger inflation figures today, say 2.4 percent or above, could actually have an upward impact on the pound as it makes more quantitative easing less likely for the rest of the year," said Kathleen Brooks, research director at FOREX.com.
"We could bounce a bit but we will still find that $1.59 level a very sticky level of resistance. I don't think we will have a rally back up to $1.60-$1.63 but I would certainly be looking for volatility."
Brooks cautioned against selling the pound aggressively until it convincingly broke below its 200-day moving average.
Strategists said the main focus for sterling this week however will be the BoE's quarterly Inflation Report on Wednesday, where the bank releases its latest growth and inflation projections.
Markets will scrutinise the report for indications on the outlook for the economy and the prospects of more easing, via bond purchases, which could knock the pound as they increase the currency's supply.
A string of UK data this week, including inflation figures on Tuesday, jobs figures on Wednesday and retail sales on Thursday, should give an indication of how the UK has begun the fourth quarter after solid growth in the third.
Sterling has been under selling pressure since the government unexpectedly announced on Friday it would use proceeds from the BoE's bond-buying programme to trim its short-term borrowing, a move BoE Governor Mervyn King said equated to a "moderate loosening" of policy.
The euro was down 0.2 percent against sterling at 79.83 pence. The weak single currency slid to a two-month low against the dollar after international lenders clashed over a target date to shrink Greece's debt pile.
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